Bet on subprime, says Goldman Sachs

By Sam Mamudi

The wheel has come full circle, or something. A Bloomberg report today brings news that Goldman Sachs is recommending investors benefit from the upturn in housing by buying…subprime mortgages.

Specifically, Goldman is telling clients to buy derivatives linked to the ABX indexes, which as Bloomberg points out, were used to play bets against housing in the run-up to the financial crisis.

The bank’s analysts said after “the positive surprise” from housing this year, versions of the ABX that have already rallied are still attractive compared with real estate investments such as homebuilder shares, which have almost doubled over the past 12 months.

The SPDR S&P Homebuilders ETF (XHB) is up 53% this year, the best performer among State Street Global Advisors’ range of sector-specific ETFs. As the story notes, PulteGroup Inc. (PHM) is the best performer on the S&P Supercomposite Homebuilding Index, up 166% this year.

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.